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Tax Benefits on ULIP pension plan for NRIs

Tax Benefits on ULIP Pension Plan for NRIs

Tax Benefits on ULIP pension plan for NRIs


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April 07, 2021

By : Bajaj Allianz Life

Non-resident Indians have many investment options to choose from if they wish to invest in India. ULIP pension plans offer many benefits for NRI investors. To learn more about ULIP benefits and specifically, ULIP tax benefits, for non-resident Indian investors, let’s start by understanding the answer to ‘What is a ULIP policy?

 

What is a ULIP policy?

 

A ULIP policy or a Unit Linked Insurance Plan is an investment option that gives investors the opportunity to enjoy the dual advantage of investment coupled with insurance coverage. The insurer offers the policyholder a life cover, which acts as a safety net for their loved ones. The policyholder pays the insurer premiums on a periodic basis.

Furthermore, the policyholder can also choose to invest in their choice of equity funds, debt funds, etc. These funds can give policyholders market-linked returns, which is another one of the many ULIP Benefits to look forward to.

 

Can NRIs purchase ULIPs in India?

 

Yes, Non-resident Indians (NRIs) can undoubtedly invest in ULIPs in India. As per the Foreign Exchange Management Act (FEMA), NRIs are permitted to make investments in India; This also includes investments in Unit Linked Insurance Plans. Consequently, NRIs who wish to purchase ULIPs in India can do so after satisfying all the Know Your Customer (KYC) norms for investing in such life insurance-investment plans.

 

How can NRIs purchase ULIP pension plans in India?

 

If you are an NRI who wishes to avail ULIP benefits, you can do so by comparing the different options and selecting a plan that suits your needs. Once you zero in on a plan, you need to fill out the application form and submit the requisite documents.

Generally, these are the proofs that you will need to invest in ULIPs if you are an NRI.

  • A scanned copy of your passport, which acts as a proof of your age and identity
  • A recent passport-sized photograph
  • Proof of residence in India
  • Proof of residence overseas
  • Proof of income
  • Overseas Citizenship of India (OCI) or Persons of Indian Origin (PIO) Card
  • A copy of your PAN care or Form 60 if you possess income earned in India
  • A Foreign Residency Supplementary Questionnaire for NRIs or PIOs
  • Medical examination report as may be required
  • Any other document as may be required from KYC and AML perspective

Your insurer will need these documents, as they are required to comply with the applicable Anti-Money Laundering and Know Your Customer (KYC) norms.

NRIs can pay the premiums to the insurer using any of the following accounts:

  • Any Indian bank account
  • Any NRE or NRO account maintained with an Indian bank

NRIs can also use any of the following methods to pay the premium regularly.

  • Domestic or international credit cards
  • Internet banking
  • Debit cards
  • Online wallets like PayTM and Google Pay
  • Credit Card Standing Instructions (CCSI)
  • National Automated Clearing House (NACH)

 

How do ULIPs help NRIs save on their income tax liability?

 

Now that you know the general procedure involved, let us look at the ULIP tax benefits available to NRIs.

1. Tax benefit on the premiums paid

Section 80C of the Income Tax Act, 1961, allows taxpayers to claim the premiums paid for ULIPs as a deduction up to Rs. 1.5 lakh, provided the amount of premium is less than or equal to 10% of the capital sum assured (for ULIP policies purchased on or after April 1 2012) and up to 20% of the capital sum assured before 1 April 2012.

NRIs who have purchased a ULIP can also benefit from this deduction.

2. Tax benefit on maturity/death benefits

In case of the policyholder’s death during the tenure of the plan, the death benefits received by the nominees are exempt from tax, as per section 10(10D) of the Income Tax Act, 1961. Note that Death benefit under Key man policy is taxable subject to the provisions stated therein. The maturity benefits received by the policyholder are also tax-free as per the provisions of the same section, subject to the following conditions.

  • For ULIP policies purchased on or after April 1 2012, this benefit is available on the condition that the amount of premium is less than or equal to 10% of the capital sum assured.
  • For ULIPs purchased before April 1 2012, the benefit u/s 10(10D) can be availed when the premium is less than or equal to 20% of the capital sum assured.

As per the new provisions introduced in Budget 2021, the maturity proceeds will be tax-free only if the annual premium paid does not exceed Rs. 2.5 lakh subject to the satisfaction of the conditions under Section 10(10D) as mentioned above. If you invest more than Rs. 2.5 lakh in ULIPs, the income or the returns on maturity will be subject to capital gains tax. This is applicable only for policies purchased on or after February 1, 2021.

Note: Top up premium would also be considered for determining annual premium for taxation subject to conditions stated therein.

3. Taxation on capital gains

Gains on ULIPs are exempt from Long Term Capital Gains (LTCG) tax, provided the annual premium paid does not exceed Rs. 2.5 lakh. NRIs can also take advantage of these ULIP benefits.

 

Conclusion

 

That sums up the tax benefits on ULIP pension plans for NRIs. With this investment option, NRIs can ensure that they receive guaranteed benefits that they can rely on during the retirement phase in life. Keeping these tax benefits in mind, it can be easier to go about tax planning and reduce the overall burden of taxation.

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~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.